Sharp rise in guar prices dims prospects of futures trading resumption

Last Updated: Thu, Dec 13, 2012 21:22 hrs

Guar gum and guar seed prices have witnessed sharp surge in recent weeks and despite the fact that this narrow commodity has been delisted for trading in futures. Guar seed and gum prices are now more than double from the level prevailing a year ago and have seen a sharp jump of over 50 per cent from beginning of this November .

While industry insiders say hoarding of the commodity by farmers is a key reason for the recent rise in prices, the development has potential to spoil chances of the commodity being re-allowed for trading in futures. This is because prices are still 60 per cent lower than their peaks seen last March.

An advisory committee, set up by the ministry of consumer affairs, had recommended that futures trading be permitted in guar seed and gum again. But with prices already high, the chances of futures being re-allowed are dim.

Guar seed prices are hovering around Rs 12,500 to Rs 13,000 per quintal, while guar gum prices are quoted in the range of Rs 39,000 per quintal in the spot market at Jodhpur. No one was expecting a sharp upturn in prices as sowing has increased and even farmers in states like Andhra Pradesh have sown guar this kharif season. "It’s unfortunate that prices are rising despite a ban on futures trading. We believe farmers have hoarded the commodity in anticipation of a further rise in prices. But we do not see any upside from here onwards as we expect guar seed production to rise by around eight million bags (each weighing 100 kg) to about 20 million bags this year," said Purushottam Hissaria, president of the Indian Guar Gum Manufacturers Association.

Guar seed, which is sown mostly in the arid regions of the country, has a shelf life of two-three years. Therefore, farmers are willing to wait for higher prices, similar to what was seen in March-April this year.

Guar seed prices have surged from a level of Rs 2,422 per quintal in 2010-11 to Rs 29,000 per quintal in 2011-12, while gum prices had touched a high of Rs 100,000 per quintal. After the ban from the Forward Markets Commission, prices of the commodities witnessed a sudden drop, but once again it started upwards journey in the past one month. The recent volatility in guar seed and guar gum prices has raised concerns for Indian guar processors, who fear losing their export market.

"The industry is operating at reduced capacity of 10-20 per cent. Some of the companies have practically become non-operational. This is posing a serious threat to all the stakeholders of the value chain," said Sudhir Merchant, former chairman, Shellac and Forests Products Export Promotion Council (Shefexil), a nodal agency to promote guar gum exports.

Added Debjani Roy, executive director, Shefexil: "The demand is poor in the international market. Consignments have stalled at ports in the US. The prices have already peaked and we do not see any reason for a further rise in prices."

In October this year, trade body Associated Chambers of Commerce and Industry in India (Assocham) had written to the government cautioning about the resumption of futures trading in guar gum.

'The future market price rise in 2011-12 is all most 10 times higher than last year and is the steepest rise in any agri commodity in the history of Indian future exchanges. The future price change volatility in 2011-12 has gone up by almost 80 per cent compared to 2010-11 figures. Guar future prices have ranged between Rs 2,743 and Rs 29,900 per quintal. During 2011-12, the maximum price was 889 per cent higher than the maximum price 2010-11,' Assocham had noted.

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